Neco 2019 Commerce Question 3
Practice objective / multiple choice question 3 from the 2019 Neco Commerce examination.
A small manufacturing firm needs ₦5,000,000 for new equipment. It can either obtain a bank loan at 12\% per annum payable annually for 5 years, or issue new ordinary shares. If it issues shares, the expected dividend yield is 8\% per year and the market price per share is ₦250. The firm currently has 80,000 shares outstanding. Assuming the share issue raises exactly the required amount and that the cost of equity is approximated by the dividend yield, which financing option has the lower annual cost to the firm?
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About This Question
This is Neco 2019 Commerce Question 3. It is one of the objective questions from the 2019 Neco Commerce examination.
Difficulty level: Medium .
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